Look into 2008: legal update

While benefits managers have spent the last couple of years frantically preparing for pensions simplification and busily complying with a raft of family-focused legislation in the Work and Families Act 2006, many seem non-plussed by the regulatory changes due to come into effect next year. This is not because the forthcoming legislation won’t have any impact on benefits packages – many laws will have repercussions for various perks – but because incoming regulations won’t typically necessitate the wide scale changes seen in the past.

That said, Alison Haynes, a partner in the global employment services department at Deloitte, believes many organisations are ignoring the potential consequences of not complying with legislation such as the Corporate Manslaughter and Homicide Act 2007, which comes into force on 6 April 2008. “As soon as there are some test cases, employers will wake up and realise they have to do something about it,” she argues.

Under the terms of the Act, companies can be found guilty of corporate manslaughter and either face prosecution or an unlimited fine, if it can be proven that they demonstrated a gross breach of duty of care towards an individual, which resulted in their death.

The Act could lead to a tightening of employer’s fleet management policies, as organisations could be accused of negligence if they don’t ensure that both employees and vehicles (including privately-owned cars that are used on business) are fit to be on the road. It might also drive a resurgence of interest in the company car as an employee benefit. “When you have a contractual relationship with the car as an employer, you know it’s insured, MOT-ed and serviced. In short, that it is an appropriate vehicle for an employee to be driving,” explains Haynes.

Certainly the Act puts a lot of pressure on fleets which only offer cash allowances, says Jim Salked, chairman at fleet specialist Opticar. “Employers would probably be better off looking at offering combinations of company car ownership and employee car ownership where you have formal management in place.”

Small and medium-sized enterprises (SMEs) could be particularly affected by this area of the law, as they often tend to rely on managers using their own cars for work purposes. In fact, most of the legislative changes due next year will have the biggest impact on this SME sector. Take the extension of the Occupational and Personal Pension Schemes (Consultation by employers and miscellaneous amendment) Regulations 2006, which require organisations to consult with employees prior to making any major changes to their occupational or personal pension schemes. These regulations already apply to organisations with more than 100 staff, but from 6 April 2008, will be extended to employers with more than 50 employees.

Changes to statutory holiday entitlement will also hit smaller firms harder than larger organisations, as they tend to be more likely to offer the minimum level of annual leave of four weeks including bank holidays, and staff are often less able to absorb another employee’s workload.

Statutory holiday entitlement increased to 24 days in October, and will rise by another four days next year. Bank holidays can be included in this total. Although the first amendments came into effect this year, organisations that base their holiday year on calendar years won’t feel the impact until 2008.

Lua Leggett, director for corporate business development at Punter Southall, warns that the changes could impact on holiday trading perks offered through flexible benefits schemes. “If [in addition to this increase] employees are buying holiday, the impact on productivity could be quite significant,” she says. As a consequence, some employers could decide to remove holiday trading altogether.

Although there is not a great deal of employment legislation scheduled to come into effect in 2008, employers need to be aware of several topics that are still under consultation and could reach the statute book next year. One such matter is the much-mooted changes to additional paternity leave and pay, and how these will be administered, on which the government has carried out a consultation this year. Its proposals will give employed fathers up to 26 weeks’ additional paternity leave, some of which could be paid if the mother returns to work early. At the time of going to press, the government had announced it is planning implementation for babies due on or after April 2010, although it has not made a formal decision on timing and it remains its goal to introduce these changes by the end of this parliament.

Another area of legislation currently under review by HM Revenue & Customs (HMRC) is the use of approved mileage payment allowances (Amaps), which reimburse staff who use their own cars for business for the mileage covered. In its consultation, which closed on 31 July, the government outlined three possible ways that the current structure of Amaps could be changed. The results have yet to be published.

Charles Cotton, reward and employment conditions adviser at the Chartered Institute of Personnel and Development, believes changes to Amaps could have a negative impact on employers. “All that will happen is many SMEs will face more administrative hassle and increased costs, and employees will be penalised for using their car for business,” he explains.

Even if 2008 does not result in a decision to change Amaps, it could be the year when benefits managers see the impact of past legislation on employers, particularly around age discrimination. Catrin Young, remuneration and benefits solicitor at TLT, says: “The first employment tribunal decision under the Employment Equality (Age) Regulations 2006 was delivered on 10 October 2007 in the case of Bloxham v Freshfields Bruckhaus Deringer. While it is only a first instance decision, the judgment is likely to offer employers some guidance on how to successfully justify potentially discriminatory practices in occupational pension schemes.”

As old and new legislation starts to hit home in 2008, benefits managers should also be looking to the future and what could be in store from next year’s Budget. With the pre-Budget report delivering a few surprises – the changes to capital gains tax, for instance – many are unsure what the new Chancellor might deliver next. ” If we had had this conversation before the pre-Budget report, I’d have been fairly certain that benefits like childcare vouchers [would be safe]. I’m not sure I would have such certainty now,” says Deloitte’s Haynes.

Mark Childs, director of remuneration specialists Total Reward Solutions, adds that preparing for the unexpected goes with the territory. “In the benefits world you’ve always got to be ready to respond to sudden unforeseen changes. So my advice is always to try to imagine the unimaginable,” he explains

Is there a future for salary sacrifice?

From next April, an increase in national insurance (NI) thresholds will make the business case for salary sacrifice arrangements even more attractive.

Yet many benefits experts fear that as more employers adopt salary sacrifice schemes, thereby reducing the amount of overall NI revenue the government receives, the Chancellor will close this tax loophole.

The trouble is that the government also wants to encourage people to save more for their retirement, and the savings on pension contributions made through a salary sacrifice arrangement make it a compelling benefit.

It’s a tricky call, and one the government may not even look at next year. But as the deadline for enrolling staff into a pension arrangement approaches in 2012 when personal accounts will come into force, salary sacrifice may come under increasing scrutiny.

Case study: BT

BT in line for legal changesIn anticipation of next year’s legislative changes, BT’s reward team is focused on ensuring the structure of its benefits package is optimised to minimise risk.

Jim McInally, HR director, reward and employee relations, explains: “The next area we are looking at is the tax changes in the pre-Budget report. I have already had a number of senior managers come in and have a quick chat about what the changes to capital gains tax mean for them, and [asking] whether we are considering restructuring our remuneration package going forward to reflect changes. There are a number of tax-planning opportunities which will emerge from the new structure, as well as some more adverse impacts.”

The division responsible for managing BT’s extensive fleet is also preparing for the introduction of corporate manslaughter legislation. Duncan Webb, head of sales and marketing for BT Fleet, says: “We will have to make sure that people who use their [own] vehicle for business, have a [way of] showing that their vehicles are fit for purpose.”

At the moment, it is up to individual employees to check their vehicle is safe to drive, and line managers are responsible for ensuring this process happens.